Which of the following statements is correct? Unanticipated inflation:
A)arbitrarily "taxes" fixed-income groups.
B)increases the real value of savings.
C)increases the purchasing power of the dollar.
D)benefits creditors at the expense of debtors.

Question

Quizplus · Accepted Answer

Unanticipated inflation "taxes" fixed-income groups because their income remains the same while prices for goods and services increase, reducing the purchasing power of their fixed income. This is also known as the "inflation tax." Option B is incorrect because unanticipated inflation decreases the real value of savings since the amount of money saved will not have the same purchasing power it used to. Option C is incorrect because unanticipated inflation decreases the purchasing power of the dollar. Option D is incorrect because the benefits of inflation depend on whether one is a creditor or debtor, but unanticipated inflation does not benefit either group as it leads to economic uncertainty and instability.

Which of the Following Statements Is Correct? Unanticipated Inflation